Cityneon Holdings - DBS Research 2017-05-30: A Unique And Explosive Bet

CITYNEON HOLDINGS LIMITED 5HJ.SI

Cityneon Holdings - A Unique And Explosive Bet

Maiden Avengers exhibition opens in China, after signing a two-year multiple cities tour agreement with Starclouds.
Growth from expanding regional footprint for exhibition sets; focus on higher margins project for Traditional business.
Securing third IP is a potential catalyst.

We continue to expect Cityneon to deliver explosive FY16-FY19F EPS CAGR growth of c.150%.
Trading at a low PE to growth ratio of 0.2x FY2018F earnings, Cityneon is attractive to investors seeking unique ideas in the entertainment industry. An expanding project pipeline, plans to add a third Intellectual Property (IP) right, and focus on higher margin projects for the Traditional business are catalysts.
Disposal of controlling stake by Star Media paves way for entry of strategic shareholders. Upon completion of the transaction and with the support of the new shareholders, Cityneon would be able to embark on more M&A activities, including acquisition of a third IP.

Maintain BUY, TP S$1.23. We have reduced our assumption of number of exhibition sets to five from seven for FY 2017, and by one to seven sets for FY 2018, due to delays in launching the exhibitions. We now account for only one permanent set in Las Vegas for FY 2017 instead of two. We have also assumed higher contribution from the Traditional business.
Overall, we have cut our earnings estimates for FY 2017F and FY 2018F by 17% and 12% respectively. Target price is tweaked lower to S$1.23 after rolling forward our valuation peg to FY 2018F earnings, and assigning a discount of 20% to peers’ average PE valuation of 18x.

VHE’s limited track record. Victory Hill Exhibitions (VHE) was formed in 2012 and the first exhibition was held in New York in 2014.
Earnings dependent on number of visitors, especially for the permanent sets in Las Vegas.

We attended the grand opening of Marvel’s Avengers S.T.A.T.I.O.N. exhibition organised by Beijing Starclouds Entertainment Development Co., Ltd at West 4 Gate of Chaoyang Park in Beijing, China last week.
The event was well-attended by the media, people in the entertainment circle, and business associates.

The exhibition is the group’s maiden Marvel’s Avengers S.T.A.T.I.O.N. exhibition in China. Cityneon has signed a twoyear multiple cities tour in China with Beijing Starclouds Entertainment Development (Starclouds). Starclouds will host and operate both the Avengers and Transformers Experience touring exhibitions in China (excluding Hong Kong, Taiwan and Macau).
This first exhibition will be from 27 May to 20 August 2017, and the second exhibition of the Avengers set and the launch of the first Transformer exhibition is expected to be held by the end of this year.
Reputable operating partner Starclouds’ key management team includes Chairman Mr. Li Yao Han, who was also the previous founder and Chairman of Wanda Cinema Line. Starclouds’ CEO is Mr. Charles Lyu, a 14- year veteran in the entertainment industry in China, and was previously Wanda’s General Manager.

We continue to expect Cityneon to register explosive FY16-FY19F EPS CAGR growth of c.150% as the group expands its regional footprint for its exhibition sets.
For the Traditional business, the focus would be on the theme park build projects, and also projects in the Middle East. The group has already established a successful track record with the completion of the multi-million international theme park project in Shanghai, which gives it a competitive advantage to secure other theme park-related projects.

We have reduced our assumption of the number of exhibition sets to five from seven for FY 2017 and by one to seven sets for FY 2018, due to delays in launching the exhibitions. We now account for only one permanent set in Las Vegas for FY 2017 instead of two.
We have also assumed higher contribution from the Traditional business.
Overall, we have cut our earnings estimate for FY 2017F and FY 2018F by 17% and 12% respectively.

Our target price is now S$1.23, a slight reduction from the previous S$1.26, after rolling forward our valuation peg to FY 2018F earnings, and assigning a discount of 20% to peers’ average PE of 18x.
Near term, share price is likely to be capped by the potential mandatory general offer at S$0.90 per share made by the special-purpose vehicle that is buying over the entire 52.5% stake from Star Media.
Catalysts include potential for third IP.

Lee Keng LING DBS Vickers | http://www.dbsvickers.com/ 2017-05-30

DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 1.230 Down 1.260